CONFORMED COPY

CREDIT NUMBER 698 SO

DEVELOPMENT CREDIT AGREEMENT

(SDB Project)

between

SOMALI DEMOCRATIC REPUBLIC

and

INTL ERNATIONAL DEVELOPMENT ASSOCIATION

Dated June 1, 1977

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DEVELOPMENT CREDIT AGREEMENT

AGREEMENT, dated June 1, 1977, between SOMALI DEMOCRATIC

REPUBLIC (hereinafter called the Borrower) and INTERNATIONAL

DEVELOPMENT ASSOCIATION (hereinafter called the Association).

WHEREAS (A) the Borrower has requested the Association to

assist in the financing of Parts A, B (ii), B (iv) and B (v) of

the Project described in Schedule 1 to this Agreement by extending

the Credit as hereinafter provided;

(B) the Project will be carried out by the Somali

Development Bank, a statutory body existing under the laws of the

Borrower (hereinafter called SDB) with the Borrower's assistance

and, as part of such assistance, the Borrower will make available

to SDB the proceeds of the Credit as hereinafter provided;

(C) the Borrower intends to contract from the Arab Fund for

Economic and Social Development (hereinafter called the Arab Fund)

a grant (hereinafter called the Arab Fund Grant) in an amount of

100,000 Kuwaiti Dinars equivalent to about $340,000 to be made

available to SDB to assist it in financing Parts B (i), B (iii)

and B (v) of the Project on the terms and conditions set forth

in an agreement (hereinafter called the Arab Fund Grant Agreement)

to be entered into between the Borrower and the Arab Fund; and

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WHEREAS the Association has agreed, on the basis, inter alia,

of the foregoing, to extend the Credit to the Borrower upon the

terms and conditions hereinafter set forth and in the Project

Agreement of even date herewith between the Association and

SDB;

NOW THEREFORE the parties hereto hereby agree as follows:

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ARTICLE I

General Conditions; Definitions

Section 1.01. The parties to this Agreement accept all

the provisions of the General Conditions Applicable to Development

Credit Agreements of the Association, dated March 15, 1974,

with the same force and effect as if they were fully set forth

herein, subject, however, to the modifications thereof set forth

in Schedule 2 to this Agreement (said General Conditions

Applicable to Development Credit Agreements of the Association,

as so modified, being hereinafter called the General Conditions).

Section 1.02. Wherever used in this Agreement, unless the

context otherwise requires, the several terms defined in the

General Conditions have the respective meanings therein set

forth and the following additional terms have the following

meanings:

(a) "SDB" means the Somali Development Bank established

by Decree Law No. 2 of February 28, 1968, converted with

amendments into law by Law No. 15 of May 30, 1968, operating

pursuant and subject to Law No. 25 of April 30, 1970, of the

Borrower;

(b) "Project Agreement" means the agreement between the

Association and SDB of even date herewith, as the same may be

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amended from time to time, and such term includes all agreements

supplemental to the Project Agreement;

(c) "Subsidiary Loan Agreement" means the agreement to

be entered into between the Borrower and SDB pursuant to Section

3.01 (a) of this Agreement, as the same may be amended from time

to time, and such term includes all schedules to the Subsidiary

Loan Agreement;

(d) "sub-loan" means a loan or credit made or proposed

to be made by SDB out of the proceeds of the Credit relent to

SDB under the Subsidiary Loan Agreement to an Investment

Enterprise for an Investment Project and "free-limit sub-loan"

means a sub-loan, as so defined, which qualifies as a free-limit

sub-loan pursuant to the provisions of Section 2.02 (b) of this

Agreement;

(e) "investment" means an investment other than a sub-loan

made or proposed to be made by SDB out of the proceeds of the

Credit relent to SDB under the Subsidiary Loan Agreement in

an Investment Enterprise for an Investment Project;

(f) "Investment Enterprise" means an enterprise to which

SDB proposes to make or has made a sub-loan or in which it

proposes to make or has made an investment;

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(g) "Investment Project" means a specific development

project to be carried out by an Investment Enterprise utilizing

the proceeds of a sub-loan or investment;

(h) "Somali Shilling" and "Sh" mean the currency of the

Borrower;

(i) "Foreign currency" means any currency other than the

currency of the Borrower;

(j) "SDB Law" means Law No. 25 of April 30, 1970, of the

Borrower, as amended to the date of this Agreement;

(k) "By-laws" means the by-laws of SDB issued under

SDB Law;

(1) "subsidiary" means any company of which a majority of

the outstanding voting stock or other proprietary interest is

owned or effectively controlled by SDB or by any one or more sub-

sidiaries of SDB or by SDB and one or more of its subsidiaries;

(m) "Statement of Policy" means the statement of lending,

investments and financial policies adopted by the Directors of SDB

pursuant to Section 6.01 (d) of this Agreement; and

(n) "long-term" and "medium-term" sub-loans mean sub-loans

with maturity of seven to twenty years and sub-loans with maturity

of two to six years, respectively.

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ARTICLE II

The Credit

Section 2.01. The Association agrees to lend to the Borrower,

on the terms and conditions in the Development Credit Agreement

set forth or referred to, an amount in various currencies equivalent

to five million dollars ($5,000,000).

Section 2.02. (a) Subject to the provisions of other

paragraphs of this Section, SDB, on behalf of the Borrower

pursuant to Section 2.08 of this Agreement, shall be entitled to

withdraw from the Credit Account:

(i) in respect of the reasonable cost of goods and

services required for the carrying out of the

Investment Project in respect of which the

withdrawals requested and to be financed out of

the proceeds of a sub-loan or investment, up to

the equivalent of four million seven hundred

forty thousand dollars ($4,740,000):

(A) amounts expended (or, if the Association

shall so agree, such amounts as shall be

required to meet expenditures to be made)

in foreign currency for imported goods (except

goods described in paragraph (B) of this

Section) and services;

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(B) amounts expended in Somali Shillings on

account of not more than ninety-five per

cent (95%), or such other percentage as

shall be agreed between the Borrower and

the Association of the invoice price paid for

goods previously imported into the territories

of the Borrower through normal channels;

(C) amounts expended in Somali Shillings on

account of not more than eighty-five percent

(85%) (representing foreign exchange

expenditures) of the invoice price paid

for goods manufactured in the territories

of the Borrower;

(D) amounts expended in Somali Shillings on

account of not more than seventy-five

per cent (75%) (representing foreign exchange

expenditures) of the contract price paid

for civil works to be carried out in the

territories of the Borrower;

provided, however, that no amount shall be

withdrawn from the Credit Account in respect of an

Investment Project unless (1) the sub-loan or

investment for such Investment Project shall have

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been approved by the Association, or (2) the

sub-loan shall be a free-limit sub-loan for which

the Association shall have authorized withdrawals

frim the Credit Account; and

(ii) for Parts B (ii), B (iv) and B (v) of the Project,

up to an amount equivalent of two hundred sixty

thousand dollars ($260,000), the amounts expended

(or, if the Association shall so agree, such

amounts as shall be required to meet expenditures

to be made) on account of the foreign currency cost

of services and fellowships included under said

Parts of the Project.

(b) A free-limit sub-loan shall be a sub-loan for an

Investment Project in an amount to be financed out of the proceeds

of the Credit which shall not, except as the Borrower and the

Association shall otherwise agree, exceed the sum of (i) $50,000

equivalent, when added to any other outstanding amounts financed

for such Investment Project, or (ii) $1,500,000 equivalent, when

added to all other free-limit sub-loans financed or proposed to be

financed out of the proceeds of the Credit, the foregoing amounts

being subject to change from time to time as determined by the

Association.

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(c) Except as the Association and SDB shall otherwise

agree, no withdrawals shall be made on account of expenditures

made by an Investment Enterprise in respect of a sub-loan subject

to the Association's approval, or in respect of an investment, if

such expenditures shall have been made before the date of this

Agreement or more than ninety days prior to the date on which the

Association shall have received in respect of such sub-loan or

investment the application and information required by Section

2.03 (a) of the Project Agreement or, under a free-limit sub-loan,

more than ninety days prior to the date on which the Association

shall have received in respect of such free-limit sub-loan the

request and information required by Section 2.03 (b) of the

Project Agreement.

(d) Notwithstanding the foregoing allocation of the amount

of the Credit to each Part of the Project, if the Association

has estimated that the amount of the Credit then allocated to

one Part will be insufficient to finance the agreed percentages

of expenditures under such Part, the Association may, by

notification to the Borrower, reallocate to such Part to the

extent required to meet the estimated shortfall proceeds of the

Credit which are then allocated to the other Part and which are

not needed to meet other expenditures.

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(e) Without any limitations upon the generality of the

provisions of paragraph (d) of this Section, in the event the

Borrower and the Association shall, during any stage of the

implementation of the Project, agree that the amount (or any

part thereof) allocated for Parts B (ii), B (iv) and B (v) of

the Project under Section 2.02 (a) (ii) of this Agreement is not

required for purposes of said Parts, the amount not so required

shall then be reallocated by the Association to Part A of the

Project.

Section 2.03. The Closing Date shall be June 30, 1981,

or such later date as the Association shall establish. The

Association shall promptly notify the Borrower of such later

date.

Section 2.04. The Borrower shall pay to the Association

a service charge at the rate of three-fourths of one per cent

(3/4 of 1%) per annum on the principal amount of the Credit

withdrawn and outstanding from time to time.

Section 2.05. Service charges shall be payable semi-annually

on June 1 and December 1 in each year.

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Section 2.06. The Borrower shall repay the principal amount

of the Credit in semi-annual installments payable on each June 1

and December 1 commencing June 1, 1987, and ending December 1,

2026, each installment to and including the installment payable

on December 1, 1996, to be one-half of one per cent (1/2 of 1%) of

such principal amount, and each installment thereafter to be one

and one-half per cent (1-1/2%) of such principal amount.

Section 2.07. The currency of the United States of America

is hereby specified for the purposes of Section 4.02 of the

General Conditions.

Section 2.08. SDB is designated as representative of the

Borrower for the purposes of taking any action required or

permitted to be taken under the provisions of Section 2.02 of

this Agreement and Article V of the General Conditions.

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ARTICLE III

Use of Proceeds of the Credit

Section 3.01. (a) The Borrower shall relend the proceeds of

the Credit to SDB under a subsidiary loan agreement to be entered

into between the Borrower and SDB containing terms and conditions

which shall have been approved by the Association. Except as the

Association shall otherwise agree, the said agreement shall

provide, inter alia, that such proceeds will be made available to

SDB for a term of fifteen years, including five years of grace,

and for payment of interest by SDB at the rate of five per cent

(5%) per annum on amounts withdrawn and outstanding from time to

time.

(b) The Borrower shall exercise its rights under the

Subsidiary Loan Agreement in such manner as to protect the

interests of the Borrower and the Association and to accomplish

the purposes of the Credit, and except as the Association shall

otherwise agree, the Borrower shall not assign, amend, abrogate or

waive the Subsidiary Loan Agreement or any provision thereof.

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ARTICLE IV

Additional Covenants

Section 4.01. The Borrower shall not take, or permit any

of its political subdivisions, or any of its agencies or

instrumentalities, or any agency or instrumentality of any

political subdivision, to take, any action which would prevent or

materially interfere with the performance by SDB of any of its

obligations under the Project Agreement or the Subsidiary Loan

Agreement, and shall take or cause to be taken all reasonable

action which shall be required on its part in order to enable

SDB to perform such obligations.

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ARTICLE V

Remedies of the Association

Section 5.01. For the purposes of Section 6.02 of the General

Conditions the following additional events are specified:

(a) any part of the principal amount of any loan to SDB

having an original maturity of one year or more shall, in

accordance with its terms, have become due and payable in advance

of maturity as provided in the relative contractual instruments,

or any security for any such loan shall have become enforceable;

(b) SDB Law or By-laws shall have been amended, suspended,

abrogated, repealed or waived which will materially and adversely

affect the financial condition or operations of SDB;

(c) a resolution shall have been passed for the dissolution

or liquidation of SDB;

(d) a subsidiary or any other entity shall have been created

or acquired or taken over by the Borrower, if such creation,

acquisition or taking over would adversely affect the conduct

of SDB's business or the financial situation, or the efficiency

of SDB's management and personnel, or the carrying out of the

Project;

(e) SDB shall have failed to perform any covenant, agreement

or obligation of SDB under the Project Agreement, or the

Subsidiary Loan Agreement;

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(f) any proceeding shall have been taken by SDB or by others

whereby any of the property of SDB shall or may be distributed

among its creditors; and

(g) a change shall have been made in the Statement of Policy

without the Association's consent.

Section 5.02. For the purposes of Section 7.01 of the General

Conditions the following additional events are specified:

(a) the event specified in paragraph (a), or paragraph

(b), or paragraph (c), or paragraph (f), or paragraph (g) of

Section 5.01 shall occur; and

(b) the event specified in paragraph (d) or paragraph (e) of

Section 5.01 shall occur and shall continue for a period of sixty

days after notice thereof shall have been given by the Bank to the

Borrower and SDB.

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ARTICLE VI

Effective Date; Termination

Section 6.01. The following events are specified as

additional conditions to the effectiveness of the Development

Credit Agreement within the meaning of Section 12.01 (b) of the

General Conditions:

(a) the execution of the Project Agreement on behalf of

SDB has been duly authorized or ratified by all necessary

corporate and governmental action;

(b) the execution of the Subsidiary Loan Agreement on

behalf of the Borrower and SDB, respectively, has been duly

authorized or ratified by all necessary corporate and govern-

mental action;

(c) all conditions precedent to the Borrower's right to

obtain funds under the Arab Fund Grant have been fulfilled;

(d) SDB shall have adopted a statement for its lending,

investments and financial policies satisfactory to the

Association; and

(e) SDB shall have appointed duly qualified and competent

persons to the positions of Agricultural Economist, Engineer and

Legal Advisor in addition to two graduates in Economics.

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Section 6.02. The following are specified as additional

matters, within the meaning of Section 12.02 (b) of the General

Conditions, to be included in the opinion or opinions to be

furnished to the Association:

(a) that the Project Agreement has been duly authorized

or ratified by SDB, and is legally binding upon SDB in accordance

with its terms; and

(b) that the Subsidiary Loan Agreement has been duly

authorized or ratified by the Borrower and SDB, and is legally

binding upon the Borrower and SDB in accordance with its terms.

Section 6.03. The date August 30, 1977, is hereby specified

for the purposes of Section 12.04 of the General Conditions.

Section 6.04. The obligations of the Borrower under Article

V of this Agreement shall cease and determine on the date on

which the Development Credit Agreement shall terminate or on a

date twenty years after the date of this Agreement, whichever

shall be the earlier.

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ARTICLE VII

Representative of the Borrower; Addresses

Section 7.01. The Minister of Finance of the Borrower is

designated as representative of the Borrower for the purposes of

Section 11.03 of the General Conditions.

Section 7.02. The following addresses are specified for

the purpose of Section 11.01 of the General Conditions:

For the Borrower:

Ministry of FinanceGovernment of the Somali Democratic RepublicMogadiscio, Somalia

Cable address:

MINFINMogadiscio

For the Association:

International Development Association1818 H Street, N.W.Washington, D.C. 20433United States of America

Cable address: Telex:

INDEVAS 440098 (ITT)Washington, D.C. 248423 (RCA) or

64145 (WUI)

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IN WITNESS WHEREOF, the parties hereto, acting through their

representatives thereunto duly authorized, have caused this Agreement

to be signed in their respective names in the District of Columbia,

United States of America, as of the day and year first above

written.

SOMALI DEMOCRATIC REPUBLIC

By /s/ Abdullahi Ahmed AddouAuthorized Representative

INTERNATIONAL DEVELOPMENT ASSOCIATION

By /s/ Willi A. WapenhansRegional Vice President

Eastern Africa

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SCHEDULE 1

Description of the Project

The Project consists of the following parts:

(A) The financing by SDB of specific development projects through

loans to and investments in productive enterprises in Somalia.

(B) Assistance to SDB in:

(i) financial planning and financial control through

the provision of services of a Financial Advisor;

(ii) establishing appropriate appraisal and follow-up

techniques through the provision of services of an

Investment Advisor;

(iii) the carrying out of technical appraisal of industrial

projects through the provision of services of an

Industrial Engineer;

(iv) appraising applications for financial assistance from

farmers and agricultural cooperatives and to assist

the Borrower in organizing cooperatives through the

provision of services of an Agricultural Advisor; and

(v) training abroad of SDB staff in financial management

(including audit) and project appraisal and follow-

up techniques.

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SCHEDULE 2

Modifications of General Conditions

For the purpose of this Agreement, the provisions of the

General Conditions are modified as follows:

(1) The words "Investment Projects" are substituted for

the words "the Project" at the end of Section 5.03.

(2) Section 6.03 is deleted and replaced by the following

new Section:

"Section 6.03. Cancellation by the Association. If

(a) the right of the Borrower to make withdrawals from

the Credit Account shall have been suspended with respect

to any amount of the Credit for a continuous period of

thirty days, or (b) by the date specified in Section 2.03 (f)

of the Project Agreement no applications or requests

permitted under paragraph (b) or paragraph (c) of such

Section shall have been received by the Association in

respect of any portion of the Credit, or having been so

received, shall have been denied, or (c) after the Closing

Date an amount of the Credit shall remain unwithdrawn from

the Credit Account, the Association may by notice to the

Borrower terminate the right of SDB to submit such

applications or requests or to make withdrawals from the

Credit Account on behalf of the Borrower, as the case may be,

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with respect to such amount or portion of the Credit. Upon

the giving of such notice such amount or portion of the

Credit shall be cancelled."